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September 29, 2011

CitiGroup Analysis Says Control, Not Spectrum Availability, Constrains Mobile Broadband

By Peter Bernstein, Senior Editor

Let’s face it; everyone loves a good controversy. And the one that CitiGroup touched off with its September 22, 2011 report saying that there is no shortage of spectrum for new mobile services since control and not availability, in their view, is the real issue is more than good. Based on the growing fuselage of statements and postings about the analysis, this is a great one. The controversy has taken a while to percolate, but is now at a full boil as the National Association of Broadcasters (NAB) has chosen to use the Citi efforts as fodder in their lobbying efforts to hold onto their spectrum.

Bear with me. In such matters it is best to go straight to the sources. This is way too rich to paraphrase.

Point: What Citi said

While the details are worth a read, the analysis overview says it all:

  • Mixed Signals — Robust Smartphone and tablet sales suggest wireless demand is growing rapidly. And the FCC (News - Alert) suggests the U.S. faces a long-term spectrum shortage. However, several new wireless carriers -- Clearwire, LightSquared and Dish -- have been slow to light-up their spectrum suggesting excess supply. So, who's right? Is there a spectrum shortage or not?
  • Spectrum Availability High, Use Low — Today, US carriers have 538MHz of spectrum. An additional 300MHz of additional spectrum waiting in the wings. But, only 192MHz is in use today. And 90 percent of this in-use spectrum is allocated to 2G, 3G and 3.5G services. As such, we estimate carriers can only offer average wireless speeds of 0.5-1 mbps during the peak busy hour.
  • But Spectrum Is in the Wrong Hands — Too much spectrum is controlled by companies that are not planning on rolling out services or that face business and financial challenges. And larger carriers cannot readily convert a substantial portion of their spectrum to 4G services because most existing spectrum provides 2G-3.5G services to current users.
  • Full 4G Can Deliver 5Mbps — 100 percent conversion of 538MHz allows carriers to offer 5Mbps with 10 percent simultaneous usage during peak busy-hour. This speed allows for very robust mobile use and limited home use. However, it is not sufficient for in-home replacement capable of large screen HD video streaming.
  • Bottom Lines — We do not believe the US faces a spectrum shortage. However, unless incumbent carriers accelerate their 4G migration plans or acquire more underutilized spectrum, upstart networks – like Clearwire (News - Alert), LightSquared and Dish – could have a material speed advantage over incumbent carriers provided they can clear meaningful hurdles for funding and distribution.

Counterpoint: CTIA (News - Alert) fires back

The analysis did not sit well with the wireless industry trade group CTIA. Chris Guttman-McCabe, CTIA vice president of regulatory affairs posted a lengthy rebuttal on his blog:

“As we have said multiple times in the past, and has been recognized by a bipartisan group of lawmakers in the House and the Senate, the President, and the Chairman of the FCC, there is a need to bring additional spectrum to market to fuel what is one of the country’s key industries. Other countries have recognized the need to fuel their mobile ecosystems and have identified hundreds of megahertz of spectrum for mobile use. Our member companies would not be lining up to spend billions of dollars at auction for the right to use this spectrum if there was not explosive consumer demand for mobile broadband services.

“We need to move past NAB’s efforts to attack what everyone around the world already knows – that mobile broadband usage is exploding, and more spectrum is needed to continue to drive benefits for citizens that even five years ago were unimaginable.

“This time, NAB points to a report to conclude that there is no spectrum shortage. Aside from our concerns with several of the data points in the report, the most amazing element of the report that NAB fails to consider is that the authors of the study INCLUDE 120 MHz of reallocated broadcast spectrum in their analysis, when they talk about spectrum availability being ‘high.’ Page 2 of the report says that an additional 300 MHz of spectrum is ‘waiting in the wings,’ and 120 MHz of which is the very broadcast spectrum that the FCC has proposed to reallocate and that Congress is considering for incentive auctions. CTIA looks forward to working with Congress to ensure that there is in fact sufficient spectrum brought to market.”

What it is really all about

What’s this all about? Here is a surprise. It is about money.

This is an instance where the “Golden Rule” applies — as in “he who has the gold rules.” After all, radio spectrum is a scarce and insanely valuable national resource as witnessed by the billions that have been spent over the decades by private enterprises and public utilities to use it and/or hoard it so others cannot. Like time, spectrum is one of those resources that we cannot create more of. And, because it is a valuable national resource, Congress has given the FCC jurisdiction over spectrum allocation since its creation in 1934.

Putting aside what does appear to be a not insignificant miscalculation by Citi on how much spectrum is available for mobile broadband, the fight actually revolves around both control and availability.  History says that when it comes to providing bandwidth, whether in the wired or wireless world, there is never enough. Demand always inevitably outstrips supply and lack of supply can constrain new service introduction and growth. That said, the CTIA argument rings true. Mobile service providers globally need form spectrum to offer next generation services. Who ultimately is granted the right to mine this opportunity is the question. Will it be mobile operators, broadcasters, new entrants or will room be made to accommodate the business interest of all of those mentioned?

  • The reality is that in many places around the world, including Germany, 4G LTE (News - Alert) is being viewed as a viable alternative to wired broadband services, and a path to provide enough bandwidth to satisfy the needs of most households and people on the go. In fact, more mobile broadband is seen as the enabler for/accommodator of things like:

    The increased media richness of social media which increasingly is eating into consumer time spent looking at and interacting with their mushrooming variety of screens
  • Bandwidth intensive real-time interactive un-tethered gaming
  • Anywhere, anytime near television quality video conferencing
  • Improved broadcast television reception on smartphones and tablets
  • Machine-to-machine services, including the vital role mobile will play in smart grids as we move to a world which by 2015 is estimated to have 10 billon plus communications aware devices
  • Improved telemedicine  

The NAB seems to be putting its eggs in the Citi basket that says full 4G can deliver 5Mbps. “Allows for very robust mobile use and limited home use. However, it is not sufficient for in-home replacement capable of large screen HD video streaming.”

Yet, this appears to beg a question. As more and more people globally look to mobile broadband as their sole and/or primary connection to the world for voice, Internet and video and the freedom to have that connection ubiquitously, is saying that they might not have the ability to have HD quality streamed video really a public policy game changer?

For all of my years in the industry, I have tried to avoid taking sides in corporate food fights. However, on this one, it seems that if NAB members are concerned, they should get into the mobile broadband business either themselves or by investing in new market entrants. Dare I say it, but they may even wish to consider partnering with mobile operators. Plus, if streamed HD video is that critical, consumers will have the choice to obtain wired services that give them the customer experience they want.  

Finally, what about Citi’s observation that spectrum is in the wrong hands? Really! That certainly seems like a declaratory statement without much justification behind it. From whose perspective? It seems fair to observe that those who may have to sacrifice spectrum versus those seeking more come see things a bit differently.

The right hands are those who have a vision they are willing to invest in. This is not, and should not be, about regulatory gamesmanship. In the end, in the U.S., the FCC is the ultimate arbiter, and rightfully so. Its decisions are supposed to be based on what is in the best interests of the country as done so through the context of their responsibilities of being good stewards of spectrum. They have the control and hence the ability to facilitate availability. We shall see, industry food fights aside, if they choose wisely. Like I said at the top, you have to like a great controversy.

Peter Bernstein is a technology industry veteran, having worked in multiple capacities with several of the industry's biggest brands, including Avaya, Alcatel-Lucent (News - Alert), Telcordia, HP, Siemens, Nortel, France Telecom, and others, and having served on the Advisory Boards of 15 technology startups. To read more of Peter's work, please visit his columnist page.

Edited by Rich Steeves
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